Too soon to dial back Fed stimulus … It is too soon to determine whether to dial down the Federal Reserve's massive bond-buying program, and the economic picture may not be clear enough to make that decision for another three or four months, an influential U.S. central bank official said. New York Fed President William Dudley, a close ally of Chairman Ben Bernanke, said on Bloomberg TV that it was possible to taper down the $85 billion in monthly asset purchases by the fall "if the economy does better and if the labor market continues to improve" in the face of tighter fiscal policies. − Reuters

Dominant Social Theme: The Fed has it under control …

Free-Market Analysis: Money printing works in ways that central bankers need it to work. More money is inflationary in a mathematical sense. That doesn't mean it can be quantified, but we can watch it at work.

The most obvious place we can see it at work is in the stock market. Because this is a game of control, the money that is printed is not given to individuals but is funneled through "banks" and financial facilities. But this is just a distraction.

What is really happening is that those who have the power to print money simply give it to a chosen few in the money industry. The ability to print money-from-nothing and reap the fruits thereof is an awesome privilege and power.

A good deal of the money printed from nothing in the past few years has found its way into various private and public investments. Inevitably, these investments are rising significantly.

Those on the outside looking in have no access to freshly printed money but if they want to reap the benefits of this program they will have to place their capital in the ring. They will have to "invest."

Of course, some may choose not to. Markets are notoriously unstable and Austrian economics tells us that sooner or later swollen markets will collapse. But in the meantime, profits will be surely reaped and if one has the mindset and the determination to participate, it is possible that one can participate.

Certainly, we are getting fairly clear signals that central bankers intend to keep the proverbial punch bowl filled. In this article, a powerful central banker says as much:

"It really depends on how the economic outlook evolves… It's too soon to make that determination," Dudley said in an interview that took place Tuesday but aired Wednesday. "I think three or four months from now you'll have a much better sense of is the economy healthy enough to overcome the fiscal drag or not."

The comments reinforced a speech Dudley gave earlier on Tuesday in which he dampened speculation among investors that the central bank was preparing to reduce its unprecedented monetary stimulus. That speech boosted bonds and stocks.

At 10 a.m. EDT on Wednesday, Bernanke is set to testify before the U.S. congressional Joint Economic Committee. The chairman may shed more light on the thinking of the majority of the Fed's 19 policymakers. If the Fed dials down the purchases, Dudley said, it is not "tightening" policy but merely "adding less stimulus."

The U.S. economy looks to be growing at a 2 percent to 2.5 percent growth rate, "a pretty good performance given the amount of restraint that we're seeing from the fiscal authorities," he said.

As usual, we can see that the comments being made are hedged. It is incumbent on a central banker never to be too definitive or markets can be moved based on those comments. But Dudley's remarks are in line with others on the subject. Fed bankers intend to continue to print a lot of money.

Of course, as we often point out, no one knows how much money is too much, least of all Fed bankers. And that's why this bout of money loosening will eventually end up with another bust.

The "bust" will come more quickly if the Fed and other central banks actually start to tighten. That's because tightening is an even less scientific activity than loosening. Fed bankers try to give off the impression of confidence and control, but they have no idea of what they are doing. A history of booms and busts shows that clearly.

Given that those running these programs are well aware that they may cause a crash if they do anything precipitous, the likelihood is that they will be very cautious, at least for now. Eventually, perhaps, tightening will indeed begin and at that time (if not before) it will be wise to head for the exits.

When the tightening comes, or even before, it is likely that market movements will be powerful, indeed. It is our hypothesis that such movements may be intended to create a groundswell of support for a more globalist currency, but that is not clear at this point.

What IS clear is that central banking policies around the world seem destined to remain loose. Japan and the ECB both are pursuing such policies, as is the Chinese central bank.

After Thoughts

In such cases, within limits and prudential asset allocation, those who do want to participate could follow the dictum that the "trend is our friend." For now that trend likely includes an additional flood of new money, including the dollar, which is the most important currency of all.